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Commissioner of Income-tax, Gujarat-ii Vs. Amitbhai Gunvantbhai - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Judge
Reported in(1980)19CTR(Guj)105; [1981]129ITR573(Guj)
ActsIncome Tax Act, 1961 - Sections 45
AppellantCommissioner of Income-tax, Gujarat-ii
RespondentAmitbhai Gunvantbhai
Appellant Advocate G.N. Desai, Adv.
Respondent Advocate J.M. Thakore, Adv.
Excerpt:
.....- income-tax officer calculated capital gains of rs. 36000 on footing that price of acquisition of shares was rs. 50 - assessee contended that it did not gain from reduction of share prices - further contended that capital gain arose in year of account subsequent to relevant accounting period - whether there was any benefit derived by assessee from reduction of share prices - facts revealed that amount of rs. 36000 never reached assessee - held, amount of rs. 36000 cannot be said to be capital gains as it did not reach assessee. - - 1. these two references are inter-connected as we will indicate in the course of this judgment and it is best to dispose of both of them by this common judgment. [1970]78itr474(sc) ,and declined to answer the second question on the ground that the..........purchased by gunvantbhai and subodhbhai from the group of shantilal mangaldas. out of these 1,990 shares, gunvantbhai purchased 1,200 shares at rs. 80 per share out of the moneys belonging to the assessee. the shares were subsequently sold in the same accounting year, that is, samvat year 2023, at the price of rs. 80 per share. it may be noted that 1,200 shares were purchased on april 1, 1967, at the rate of rs. 80 per share and were sold on may 23, 1967, at the rate of rs. 88 per share. thus, immediately there was a short-term capital gain to the extent of rs. 9,600 to the assessee. by what the arbitrators called their supplementary award dated february 10, 1969, the price of the shares of navjivan mills ltd. was fixed at rs. 50 per share instead of rs. 80 per share. the price of.....
Judgment:

Divan C.J.

1. These two references are inter-connected as we will indicate in the course of this judgment and it is best to dispose of both of them by this common judgment. In Income-tax Reference No. 104 of 1974, made at the instance of the revenue, the following question has been referred to us :

'Whether, on the facts and in the circumstnces of the case, the Tribunal was right in law in holding that the capital gains was liable to be assessed for the assessment year 1968-69 on the footing of the cost of shares being Rs. 80 and not Rs. 50 per shar ?'

2. This reference came up for hearing before a Division Bench consisting of myself and T. U. Mehta J. on November 19, 1975. On that day the Division Bench found that the real controversy between the parties was not brought out by the question in the form in which it had been refered to the High Court. In order to bring out the real controversy between the parties, the Division Bench reframed the question by framing two separate questions on two aspects of the controversy which was involved in this case and the two questions which the Division Bench reframed are as follows :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the capital gains on the footing that the price of the share was Rs. 50 per share, cannot be said to have accrued to the assessee n the accounting year relevant to the assessment year 1968-69

(2) Whether the benefit of the reduction of price of the shares from Rs. 80 per share to Rs. 50 per share has in fact been passed on to the assessee ?'

3. The facts that we are setting out hereinbelow are taken from the judgment delivered by the Division Bench On November 19, 1975.

4. The facts giving rise to Reference No. 104 of 1974 may now be stated at this stage. We are concerned with the assessment year 1968-69, the year of account being Samvat Year 2023 (October-November, 1966, to October-November, 1967). The assessee is an individual. At the relevant time he was a minor. His natural guardian is Subodhbhai Mangaldas. Subodhbhai`s borther, Gunvantbhai, had no son and Subodhbhai, the natural father, gave the assessee, Amitbhai, in adoption to Gunvantbhai and the adoption took place in 1964. Amitbhai was born in 1955. There were disputes amongst the members of the family to which the two brother, Subodhbhai and Gunvantbhai, belonged and the disputes were referred to two arbitrators under the relevant terms of reference and the arbitrators were authorised to allocate the management of the different companies among the different members of the family and also to determine the price of the shares of the companies in connection with the transfer of the holdings of the other members to a member or members to whom the management was to be allocated by the terms of the award. Navjivan Mills Limited was one of the companies, the management of which was in the hands of the group of Shantilal Managaldas and that group was opposed to the group represented by Gunvantbhai Mangaldas and Subodhbhai Mangaldas. The assessee belonged to the group of Gunvantbhai Mangaladas. Subodhbhai Mangaldas. The assessee belonged to the group of Gunvantbhai Mangaldas and Subodhbhai Mangaldas. The arbitractors, by what they called their interim award dated February 18, 1967, gave the management of Navjivan Mills Ltd. to the group of Gunvantbhai Mangaldas and Subodhbhai Mangaldas. This involved the purchase of the shares of Navjivan Mills Ltd. by the group of Gunvantbhai and Subodhbhai from Shantilal Mangaldas and the price which the arbitractors fixed for the shares of Navjivan Mills Ltd. was Rs. 80 per share. According to the interim award of the arbitractors, 1990 shares of Navjivan Mills Ltd. were to be purchased by Gunvantbhai and Subodhbhai from the group of Shantilal Mangaldas. Out of these 1,990 shares, Gunvantbhai purchased 1,200 shares at Rs. 80 per share out of the moneys belonging to the assessee. The shares were subsequently sold in the same accounting year, that is, Samvat year 2023, at the price of Rs. 80 per share. It may be noted that 1,200 shares were purchased on April 1, 1967, at the rate of Rs. 80 per share and were sold on May 23, 1967, at the rate of Rs. 88 per share. Thus, immediately there was a short-term capital gain to the extent of Rs. 9,600 to the assessee. By what the arbitrators called their supplementary award dated February 10, 1969, the price of the shares of Navjivan Mills Ltd. was fixed at Rs. 50 per share instead of Rs. 80 per share. The price of shares of several other companies were also reduced and altered by the award dated February 10, 1969. The assessee filed the return for the assessment year 1968-69 on April 15, 1969, that is, after the final award, or what has been referred to as the supplementary award of February 10, 1969, was made by the arbitrators, and by the time, it was known that the price of the Navjivan Mills Ltd.' shares had been reduced from Rs. 80 per share to Rs. 50 share. It must be noted that by the supplementary award of February 10, 1969, the price payable by the group of Subodhbhai and Gunvantbhai was reduced from Rs. 80 per share to Rs. 50 per share, so far as Navjivan Mills Ltd. was concerned. In view of the supplementary award, the ITO calculated the capital gains on the footing that the cost of acquisition per share was Rs. 50 per share and assessed the income accordingly. Against the decision of the ITO the assessee took the matter in appeal before the AAC. On behalf of the assessee, before the AAC it was contended that the assessee was not a party to the supplementary award of February 10, 1969. It was secondly contended that the assessee did not derive any benefit from the reduction in the price of the shares in question from Rs. 80 to 50. It was in this connection that the benefit, if any, was received by Gonvantbhai Mangaldas, the adoptive father, who was benefited by the actual reduction of price and hence it was contended that the assessee could not be assessed in respect of the capital gains arising from the reduction in the cost of the shares. The third contention before the AAC was that the capital gain on account of reduction in the cost of the shares arose in the year of account subsequent to the relevant accounting year and the capital gain made from the reduction of the prices could be taxable not in the relevant accounting year for assessment year 1968-69 but in the subsequent year in which the supplementary award was received. The third contention was accepted by the AAC but he rejected the first two contentions of the assessee. As he accepted the third contention so far as assessment year 1968-69 was concerned, the AAC held that the capital gains were to be computed on the footing of the cost of the shares being Rs. 80 per share and the capital gains were worked out to Rs. 9,600.

5. Against the decision of the AAC the matter was taken in appeal by the revenue and it was contended on behalf of the department that the shares were purchased with the moneys belonging to the assessee and, therefore, the gain on account of the reduction in the cost price of shares as given by the supplementary award, which was retrospective in nature, should be assessable in the hands of the assessee. It was contended that the ITO was justified in assessing the capital gains at Rs. 45,600, that is, on the footing of the cost of the shares being Rs. 50 per share. The Tribunal agreed with the view taken by the AAC and observed :

'We accordingly leave the question open as to whether any benefit was derived after the supplementary award dated 10-2-1969 and if there was any benefit in respect of 1,200 shares of Navjivan Mills Ltd. purchased by the assessee, who was the actual beneficiary. The revenue is free to act as far as this aspect of the matter is concerned within the permissible limits of law.'

6. The Tribunal agreed with the AAC that so far as the year under reference was concerned, the assessee purchased 1,200 shares of Navjivan Mills Ltd. at the rate of Rs 80 per share and sold the same at Rs. 88 per share giving rise to a short-term capital gain of Rs. 9,600, and that the supplementary maward dated February 10, 1969,did not affect the assessee during the year under appeal. Thereafter, at the instance of the revenue, the question set out hereinabove at the commencement of this judgment was referred by the Tribunal for the opinion of the High Court. In order to bring out the real controversy between the parties, the question was split up and the two questions set out hereinabove were reframed by the High Court at the time of the hearing of Reference No. 104 of 1974 in November 1975.

7. We will come later on in the course of this judgment to the arguments of both sides in that case but the conclusion of the Division Bench was that there was no material on record to show whether the benefit of reduction in the price of the shares of Navjivan Mills Ltd., namely, at the rate of Rs. 30 per share, was in fact passed on to the assessee. It was observed :

'...... it is not clear from the materials on record whether the benefit of the supplementary award in the shape of reduction in the price from Rs. 80 per share to Rs. 50 per share has been passed on to the assessee. Unless and until this question about the benefit of the reduction in price having been passed on to the assessee is decided, there is no question of the capital gains in the hands of the assessee for any assessment year being properly assessed, whether it be assessment year 1968-69, which is the year under reference, or any subsequent year. That, it seems to us, is the crucial question in this case and that is why in order to bring out the real matters in controversy between the parties, we have reframed the questions and question No.(2) is directed to ascertain this aspect of the matter.'

8. In view of the lack of material on record regarding the aspect of the case covered by question No. (2), the Division Bench applied the formula approved by the Supreme Court in CIT v. Indian Molasses Co. P. Ltd. : [1970]78ITR474(SC) , and declined to answer the second question on the ground that the Tribunal had failed to consider the decide the question whether the benefit of the reduction in price had in fact been passed on to the assessee. So far as question No. 1 was concerned, the Division Bench held that it was advisable to keep back that question until the Tribunal had decided and expressed its conclusions regarding question No. (2) which the Tribunal would decide in the light of what the Division Bench observed in the course of the judgment. Ultimately, the Tribunal held that the benefit of Rs. 36,000 at the rate of Rs. 30 per share for 1,200 shares in fact reached the representative assessee of the minor, Amitbhai, in his capacity as guardian of Amitbhai and thus question No. (2) was decided in the affirmative, that is, it was held that the benefit of Rs. 36,000 had in fact been received by the assessee. Thereafter, at the instance of the assessee, the following two questions have been referred to us by the Tribunal for our opinion arising out of the order of the Tribunal while dealing with question No. (2) framed by us. The two questions which are the subject-matter of Reference No. 2 of 1979 have been reffered to us at the instance of the assessee :

'(1) Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the benefit of reduction in price of the shares from Rs. 80 per share to Rs. 50 per share had in fact been passed on to the assessee is supported by any material on recor

(2) Whether the approach of the Tribunal to the determination of the question referred back to it by the hon'ble High Court is justified in la ?'

9. The order of the Tribunal against which Income-tax Reference No. 2 of 1979 has been brought before this court proceeds on the following reasoning. After the matter went back to the Tribunal on the earlier order passed by this court in Income-tax Reference No. 104 of 1974, the Tribunal sent down the matter to the AAC and before the AAC evidence was led on behalf of the assessee to show that entries were made in the account of HUF of Gunvantbhai (HUF consisting of Gunvantbhai, his wife and his son, Amitbhai) and the entry was first made on October 31, 1970, in the books of Shri Gunvantbhai Mangaladas (HUF) and the account of Shantilal and others was debited to the extent of Rs. 36,000 on 31st October 1970. The relevant narration read as under :

'The amount of difference at the rate of Rs. 30 per share in respect of 1,200 shares f Navjivan Mills Ltd. purchased from you by Shri Amitbhai which was due to us is debited to your account by crediting to share difference account.'

10. The copy of the share difference account mentioned in the narration was not produced by the copy of the account of Shantilal Mangaldas and others relating to Samvat Year 2023, namely, the period from 20th October, 1971, to 6th November, 1972, in the books of account of Gunvantbhai Mangaldas (HUF) contained a credit entry of Rs. 36,000 under the date November 6, 1972, to the following narration :

'The amount of difference at the rate of Rs. 30 per share in respect of 1,200 shares of Navjivan Mills which you had paid in cash Rs. 36,000 (in rupee coins)_.'

11. There entries were admittedly in the books of account of Gunvantbhai Mangaldas (HUF). The Tribunal came to the conclusion, firstly, that there was very little direct evidence that the money had in fact been received by Amitbhai, the assessee, but by a process of inference the Tribunal came by the following steps to the conclusion that the money had been received by the assessee. The steps were-it was found by the High Court in the earlier order that the amount of Rs. 36,000 had been received by the group consisting of Subodhbhai and Gunvantbhai. The Tribunal found that Subodhbhai had not received the amount of Rs. 36,000 and, therefore, the amount of Rs. 36,000 was received by Gunvantbhai. But the Tribunal came to the conclusion that once the amount was received by Gunvantbhai, who was the guardian of Amitbhai, the minor assessee, it must be deemed to have been received by Gunvantbhai in his capacity as representative assessee on behalf of Amitbhai and in his capacity as guardian of Amitbhai and, therefore, the money was in fact received by Amitbhai, the assessee. These are the different steps by which the Tribunal came to this conclusion.

12. The main grievance of the learned Advocate-General is that Gunvantbhai who happened to be the guardian of Amitbhai was occupying four different capacities, namely, (1) his individual capacity, (2) as a member of the group consisting of Subodhbhai and Gunvantbhai, (3) as karta of the HUF which has been shown on the record as Gunvantbhai Mangaldas (HUF), and (4) his capacity as guardian of minor, Amitbhai, the assessee. The Tribunal in its order observed :

'There is no material on record to suggest that the said Shri Gunvantbhai had ceased to be the natural guardian of Amibtbhai before the impugned amount of Rs. 36,000 came to his hands. That being the position, we consider it reasoanable to infer that the amount in question did reach the representative assessee in his capacity as guardian of Amitbhai and that, therefore, question No. (2) is to be decided in the affirmative', that it, by stating that the amount did in fact reach the hands of Amitbhai, the minor assessee.

13. Now, the learned Advocate-General is right when he contends that the Tribunal has overlooked one important fact, namely, that the entries in the books of account of Gunvantbhai Mangaldas, (HUF) were not challenged by the department as a device or as a cloak to evade the tax. Nowhere on the record the department challenged that the entries did not reflect the real transaction between the parties. In the absence of any such challenge, according to the learned Advocate-General, it was not open to the Tribunal to come to the conclusion that the money was not received by Gunvantbhai in his capacity of HUF but was received by him in his capacity as the guardian of Amitbhai.

14. The basic principle is the same in the law relating to income-tax as well as in civil law, namely, that if there is no challenge to the transaction represented by the entries or to the genuineness of the entries, then it is not open to the other side-in this case, the revenue-to contend that that which is shown by the entries is not the real state of affairs. Where the entries were put in as evidence before the AAC, after the first Judgment of the High Court in Income-tax Reference No. 104 of 1974, the department never came forward to challenge that these entries were not genuine. No attempt was made by the department to show that, in fact, though the entries were made by the department to show that, in fact, though the entries were made in the books of account of the HUF, the moneys were received or passed on to Amitbhai or that the moneys were received by Gunvantbhai in his capacity as the guardian of Amitbhai. Under these circumstances, the department not having challenged the genuineness of the entire is in the books of account of Gunvantbhai, (HUF) and there being no other material on the record on which it could be said that the moneys were received by Gunvantbhai in his capacity as guardian of minor Amitbhai, there was no evidence before the Tribunal to come to the conclusion as it did at the end of its order by way of inference that the amount in question did reach the representative assessee in his capacity as guardian of Amitbhai. The entries which were the only evidence on record showed that the amount was received by Gunvantbhai in his capacity as karta of the HUF known as Gunvantbhai Mangaldas (HUF) but beyond that there was no other evidence. The Tribunal without any evidence on the record has drawn the inference that the amounts in question did reach the representative assessee in his capacity as guardian of Amitbhai.

15. The learned Advocate-General has also drawn our attention to the fact that it is open to the department in a case where a minor is the assessee, either to treat the guardian of the minor as a representative assessee or to treat the minor himself as the assessee, and in the instant case, all throughout the assessee is the minor, Amitbhai, though he may be represented by his natural guardian, Gunvantbhai, yet Gunvantbhai was not being assessed in his own name as a representative assessee on behalf of Amitbhai. Therefore, to say that Gunvantbhai was representative assessee or that the amount did reach the representative assessee in his capacity as guardian of Amitbhai, is not correct so far as the record of this case is concerned. The inference drawn by the Tribunal that the amount having come to Gunvantbhai's hands must be considered to have reached his hands in his capacity as guardian of Amitbhai is not warranted by the evidence on record and is contrary to whatever evidence that has been led on behalf of the assessee and this evidence has not been challenged on behalf of the revenue.

16. Under these circumstances, in view of the fact that the earlier order of the High Court in INcome-tax Reference No. 104 of 1974 dated November 19, 1975, had become final and in view of the fact that the only question that the Tribunal had to consider was whether the amount of Rs. 36,000 had in fact reached the assessee, Amitbhai, or not, the Tribunal should have concentrated its attention on the question in the light of the contentions taken up by the revenue and in the light of the evidence led before it. It was not open to the Tribunal in law to draw the inference when the entries in the books of account of Gunvantbhai Mangaldas, (HUF) were not challenged as a device or as a cloak to evade tax. Under these circumstances, the Tribunal's conclusion that the money had in fact reached the hands of the natural guardian of Amitbhai and, hence, the assessee, is not based on any evidence on record.

17. Question No. (1), therefore, arising in Income-tax Reference No. 2 of 1979 must be answered in the negative, that is, in favour of the assessee nd against the revenue. In view of that conclusion of ours, question No. 2 arising in Income-tax Reference No. 2 of 1979 is not required to be answered.

18. Under the circumstances, it is obvious that the as a matter of fact it has not been established that the amount of Rs. 36,000 did in fact reach the hands of the assessee, Amitbhai. If the benefit of the supplementary award in the shape of reduction in the price from Rs. 80 per share to Rs. 50 per share had not been passed on to the assessee, Amitbhai, and has not in fact reached him, when question No. (2) in Income-tax Reference No. 104 of 1974 must be decided in the negative, that is, in favour of the assessee and against the revenue. So far as question No. (1) in Income-tax Reference No. 104 of 1974 is concerned, it has now become academic because it has not been shown that the amount of Rs. 36,000 had in fact been received by the assessee.

19. Under these circumstances, both these references are disposed of. The revenue will pay the costs of these two references to the assessee.


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